4G auction brings in £1.2 billion less than hoped

Ofcom has announced five winners of the 4G spectrum auction, which will allow for the widespread rollout of next generation mobile broadband services across the UK - but the value of the auction fell short of the government's estimates by a massive £1.2 billion.

The winners – Everything Everywhere, Three, Vodafone, O2 and BT – will collectively pay communications regulator Ofcom £2.3 billion by the end of the week.

“This is a positive outcome for competition in the UK, which will lead to faster and more widespread mobile broadband, and substantial benefits for consumers and businesses across the country. We are confident that the UK will be among the most competitive markets in the world for 4G services,” said Ed Richards, Ofcom chief executive.

“4G coverage will extend far beyond that of existing 3G services, covering 98% of the UK population indoors – and even more when outdoors – which is good news for parts of the country currently underserved by mobile broadband.”

'Little commercial benefit'

A total of 250MHz of spectrum was auctioned in two separate bands – 800Mhz and 2.6GHz. The lower frequency 800MHz band is part of the digital dividend that was freed up when analogue TV was switched off, and is ideal for delivering widespread mobile coverage, as it travels further and can easily penetrate buildings.

The higher frequency 2.6GHz band is well suited for delivering fast mobile broadband in urban areas.

Upon announcing the auction, Ofcom attached a coverage obligation to one of the 800MHz lots of spectrum, where the winner would have to provide a mobile broadband service for indoor reception to at least 98% of the UK population, and 99% when outdoors. O2 has won this lot and will be expected to fulfil the obligation by the end of 2017 at the latest.

Victor Basta, managing director of Magister Advisors, a company that advises technology companies on their IPOs, was underwhelmed by the results.

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“The disappointing revenues from the 4G auction, well below government forecasts, are a reflection of the challenges that mobile operators face in growing revenues from their users in the social media age. Data-heavy social media services are causing huge growth in data traffic across mobile networks,” said Basta.

“Mobile operators increasingly find themselves in a role that is about supporting end users’ social networking habits, with little, if any, commercial benefit. Social networking has effectively turned mobile network operators into digital drug mules.”

5G spectrum

Although the auction has now concluded, Ofcom still has to determine where in the 800MHz and 2.6GHz bands each winning bidder’s new spectrum will be located. This ‘assignment stage’ will take place shortly, and once this is completed and licence fees have been paid, Ofcom will grant licences to the winners to use the spectrum.

Ofcom has also announced that it will be carrying out research towards the end of the year, with the results due to be published in spring 2014, to measure the performance of 3G and 4G networks. This research will be broken down by operator and will assess the average mobile broadband speeds received by 3G and 4G customers.

It is expected that the winners of the auction will begin launching 4G services within the next six months.

Ofcom has also said today that by 2030 demand for mobile data could be up to 80 times higher than today, and to help meet this demand, it is now planning to support the release of further spectrum for possible future 5G mobile services.

EE is the only mobile operator to already offer 4G services, after Ofcom ruled last year that it could use its existing 1800MHz spectrum, which had been previously used for 2G services, for next generation mobile broadband services.